^[1]Reader Turnack suggested that we further investigate the street in La Costa Oaks.  It would give a good sampling of what buyers can expect when considering the prospects of buying in newer tract development.

While some may equate such analysis to ‘seeing the underwear’ of the current homeowners, the buyers considering a purchase nearby deserve to know the facts.

We’ve suggested that the builder’s lender has a lot to do with any future turbulence.  Did they carefully qualify their buyers to ensure they received loans they could afford? Or did they get jammed into the highest-profit mortgages?

In this case, the builder’s lender was a smaller mortgage banking outfit, and because every house on the street was sold in 2006, we can guess that there were a fair amount of ARMs that might be resetting.

Of the twenty houses, five have been in trouble – three have been foreclosed, one has it’s trustee sale later this month, and a fifth has been sold on a short sale basis. 

The house with Santa’s note on the door had its trustee sale last week and no biders were interested in the $625,000 opening bid – and the property is vacant.  The last sale was the $695,000 REO sale next door, so we can probably guess that at least one of the other two sales will be in the $600,000s as well.

What will the others on the street do?  We’ve seen that homeowners who are underwater have given up even when they can afford the payments – will it happen here? 

How many are struggling with the choices of staying, despite no equity - or bailing?

A review of the tax rolls showed that 14 of the 20 homeowners have a loan amounts over $600,000, and half of those are over $700,000.  Can they endure?  Will they?

When they purchased in 2006 all but three paid over $900,000, and three paid $1,000,000 or more.  Now that their equity is being whittled away, there will be temptation to walk away.  At least one homeowner will attempt to break the trend and try to sell in the next six months for $800,000.  They’ll justify it by saying that they “are further down the street where the RSF Rd. noise isn’t as bad, and besides, those were foreclosures/distressed sales, and don’t count.”

But they count to the buyers.

Today’s potential homebuyers should look carefully for over-encumbered neighbors that could lead to additional foreclosures.